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FATCA solved with spreadsheets: regulatory Class A offence?

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FATCA solved with spreadsheets: regulatory Class A offence?

November 2012

Fiona CumminsProduct Manager

The FATCA introduction date (1st January 2013) is looming large and focusing the attention of financial institutions on what needs to be done. From my conversations with several financial institutions over the last few weeks, it’s clear that they are busy analysing the IGA or ‘full-fat’ FATCA agreements (depending on their location) and trying to assess the impact that FATCA will have on their operations - on specific functional areas in particular.

The FATCA introduction date (1st January 2013) is looming large and focusing the attention of financial institutions on what needs to be done. From my conversations with several financial institutions over the last few weeks, it’s clear that they are busy analysing the IGA or ‘full-fat’ FATCA agreements (depending on their location) and trying to assess the impact that FATCA will have on their operations - on specific functional areas in particular. Some have already taken an inventory of the tools and applications that currently store client data across their institution, all of which will need to be searched and classified in accordance with FATCA rules.

However, I was pretty shocked to learn that some financial institutions are seriously considering using manual spreadsheets to conduct client data assessments. In this day and age, one would expect a fully automated solution to handle the thousands upon thousands of client records that need to be collated from various siloed systems across the organisation, searched, classified and reported upon. FATCA compliance is hard enough without making it a hellishly manual experience too.

It’s obvious that most financial institutions are solving only a FATCA-specific compliance issue – instead of using this opportunity to position their institutions to solve other client data and classification-based regulations that will be introduced in 2013 and beyond. Like the introduction of the Legal Entity Identifier (LEI), FATCA is a great opportunity to get data houses in order to create more complete and enriched client data records – a critical first step in the pursuit of a single client view and the foundations for preparing for other regulations.

Of course, as with any regulation-based project, the real challenge lies in the implementation!

As an industry that is heavily reliant on the use of spreadsheets, it’s only natural that some financial institutions will assess the feasibility of conducting FATCA compliance – particularly client data assessments - using spreadsheets. However, what may seem like a simple, cost-effective and familiar solution may turn out to be an unwieldy, complicated one that makes it all the more difficult to share and control data, ultimately impairing the bank’s ability to become FATCA compliant efficiently. Moreover, how feasible would it be to collect, analyse, inspect, cleanse and remediate data from thousands of clients using a manual process like spreadsheets? And how long would it take to reach compliance in this way?

In my humble opinion, data centralisation and automation is really the only enlightened way to go – not only with FATCA but with all the other regulations that are coming on-stream over the coming months. Some of our clients are leading the way on this, starting with the creation of a central client data repository from all the data scattered around in different systems across the institution. With this, they can identify and resolve all duplicated and contradictory data. The end product is a complete or near-complete data record for each and every client. At this point, they are in a position to conduct pre-classification of clients – based purely on the data already stored within the organisation. This cuts down on the number of clients that will need to be contacted to provide additional information and highlights gaps that may exist in the client data, which can be filled through the submission of W-8 and W-9 forms.

The whole point of this is that they are:

Fulfilling their FATCA compliance requirements and laying the foundations for compliance with future, emerging regulations

Pushing this golden source data throughout the institution to create the coveted single client view, and

Creating a hugely valuable asset for both the compliance and business teams – which can be mined and used to secure new business.

Additionally, from a regulatory perspective, a good compliance solution will also provide a full audit trail of the entire FATCA compliance process, ensuring every process is methodically followed and evidenced for the benefit of the regulator.

The bottom line is that data stored in spreadsheets is an instantaneously depreciating asset, which can quickly become a liability. If stored in a centralised legal entity data repository, accessible across the organisation, then it becomes a strategic investment.

I would advise that financial institutions avoid the temptation of spreadsheet - the “quick hit data drug” of the masses. Even regulators treat them as ‘Class A’ offences with their lack of auditability. Take the time and modest additional investment to position your legal entity data repository. You’ll be glad you did and, more importantly, so will the Board. And the good news is that you don’t have to wait for final regulations to be passed to do this – your FATCA journey can start right now.